Credit crunch and low aluminium prices forcing China smelters to halt alumina imports

An oversupplied market with extra pressure from tighter credit and falling aluminium prices are forcing Chinese aluminium producers to stop taking any current shipments and cut sport import of alumina, sources said.

A cut in the alumina shipments to top alumina buyer of the world will help balancing inventory levels eventually with output as well as stabilize prices but could crumple margins in the interim at alumina producers of the world such as Alcoa Inc. and BHP Billiton.

Many Chinese banks have cut down lending to the oversupplied industries from aluminum to steel by about 20%, hardening the bid of Beijing to tackle the surplus capacity that it has fought with little success in the past decade.

The aluminium market in China is in excess now with stocks on the Shanghai Futures Exchange at 351,047 tons on Friday, the highest since 2013 August. Shanghai aluminium futures prices dropped on March 20 to the lowest ever on record since contracts began trading in the year 2005 and have lost above 8% this year.

Due to the tough market conditions, the Chinese smelters had to cut down on the purchase alumina since mid-February. The alumina imports of China a fell to 464,820 tons in February from 641,987 tons in January, according to latest customs data.

The drop in the imports of China has brought down Australian aluminum spot market prices nearly 7 percent from the month of January.

But the smelters are forced to take drastic steps now.

"Some smelters that contracted to buy imported alumina earlier are now unable to take the shipments, while others have already delayed the shipments," said an unidentified executive at an aluminium smelter in Guizhou.

The volumes of the postponed shipments could not be ascertained. Defaults on the contracted shipments were unlikely as both parties would be keen to avoid legal tangles and such situations in the past were successfully resolved through negotiations, the sources said.